Evolution & Revolution in Food Retailing Tom Gillpatrick Center for Retail Leadership Center Portland State University February 24, 2014 [email protected] http://www.pdx.edu/retail-leadership/ Students! Executive Education Today’s Managers: Tomorrows Leaders 2014 20 years , 621 alumni, Skamania Lodge Albertsons: 58 C&K: 14 Cash & Carry: 11 Franz: 36 Fred Meyer: 64 Haggen: 18 Mission foods: 21 Nestle: 11 P&G: 18 QFC: 30 Safeway: 38 Tillamook: 11 Unified: 55 Winco: 7 Also: Costco, Henningsen, Western Family, New Seasons, Ralphs, Pepsi, Hy-Vee and others! Agenda • An Industry with Tradition of Constant Evolution • Key Retail Industry Trends • Consumer Shopping Trends • Selected Implications & Conclusion Food Retailing in USA: A Story of Innovation & Evolution YYesterdayesterday TodayToday Top Retail Food Trends Top Trends in Retail Food Industry Continued Consolidation & Channel Blurring Fragmentation of Shoppers & Formats Small Footprint Stores on the Move Growth in value retailers and high touch retailers Consumer Shopping Behavior is Changing Alternative Delivery comes of Age: Online & Mobile Healthcare and wellness becomes more important Expanding Demand for Food Internationally Globalization of Retail Global Retail Consolidation Top 100 Retailers Global market share - 1998 15% - 2008 25% - 2018 40% Emerging markets are seen as key to growth strategies More companies are evolving from International to global growth strategies Concentation Ratio’s for the U.S. Retail Food Industry 1992-2009 9 Top 10 Grocery Retailers Today 1980 1990 1999 1 Safeway Am. Stores Kroger Wal-Mart 2 Kroger Kroger Walmart Kroger 3 A & P Safeway Albertsons Costco 4 Lucky A & P Safeway Target 5 Winn Dixie Winn Dixie Ahold Safeway/ABS 6 Am. Stores Albertsons Food Lion Publix 7 Jewel Supermarkets Winn Dixie Ahold Gen. 8 Grand Union Publix Loblow HEB 9 Albertsons Ahold Publix Delhaze USA 10 Supermarkets Von’s A & P Meijer Gen. $55 B $96 B $241 B $700+ Source: Progressive Grocer & Supermarket News top lists 2014 Top Grocers & Market Share Source Supermarket News 2014 Top 75 and Wall Street Journal Feb. 2014 11 Hartman Group Report 3/12 12 Supermarket Sales of Packaged Foods 1998-2012 Source Hartman Group Strategy (2013) “Re-imagining the American Supermarket 13 for a New Era in Food Culture.” Everyone is a Food Retailer Biggest Sales Gains by Grocers 15 SuperMarket News 2014 Small Footprint Store Growth Six of 8 top Banners are small-box formats Top Three Banners in Sales growth by 2018 City Target, + 31.5 % Walmart Neighborhood Markets, + 30.5% Dollar General, + 17.8% 7,000 new value stores in next five years Aldi’s new DC in California 2014 According to Planet Retail 3/21/14, “US Grocery Retailing-Top Trends” 16 Shoppers & Consumer Shopping Behavior is Changing 17 13% 2011 US Hispanic population, 2009-19 “The total number of Hispanics is expected to increase by 12% over the next five years. All age groups are projected to grow by more than 5% with those aged 55+ increasing the most.” MINTEL 2014 Source: Mintel 2/2014 20 Consumer value drivers are fragmenting Living in a world of extremes Extreme shifts in: 20th Century 21st Century Homogenous Consumers Fragmented Consumers Age Wealth/Income Ethnicity/Culture % of population % % of population % Lifestage patterns Household composition Value systems Source: IBM Institute for Business Value analysis Buyer Behavior Changing ‘Customers needs and expectations are changing. They want to shop, when they want & how they want, and we are transforming our business to meet their expectation.” Bill Simon, Walmart USA “When shopping online: 51% use mobile AND 61% use tablets” Amazon 2018 sales rank Estimated to be #9 in USA Planet Retail MigrationMigration toto thethe PolesPoles Living in a world of extremes (Food Markets) Global Local Fast High Touch High Tech Traditional New and Improved Natural/Unprocessed Slow Food Ready-to-Eat Story Food Low Price Friends/Family Good For You Premium Price All Year Naughty but Nice Seasonal Large-Scale Craft-scale Commodity Market Closed Supply Chain Open Supply Chain Ira Kalish Delloitte Touche Food Share of 21.0% Consumer 20.0% 19.0% Wallet 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 10.8% in 2012 1980 1985 1990 1995 2000 2005 Source WSJ 4/4/14, USDA data Commoditization Low inflation leads to price sensitivity High quality leads to high expectations Access to information negates marketing prowess Availability of strong private labels KeyKey ConsumerConsumer Trends:Trends: AA CulturalCultural ShiftShift ONE STOP NUTRITION Time Factor Consumer Wellbeing Snacking & Grazing Food Plus Heat & Serve Food Minus Meal Assembly Natural HealthHealth ConvenienceConvenience Organic Vegetarian CONVENIENCE The Sweet Spot PLUS GUILT FREE INDULGENCE PleasurePleasure Social Social Credence Factors Food Miles Environment Sensory Experience Indulgent & Premium BETTER FOR ME & Fair Trade New Flavours MY WORLD Animal-Friendly Source: Datamonitor Source: Hartman Group The Curious Role of Brand 29 Social: sustainable & green Emerging Trends “Some 12% of those surveyed who are primary grocery shoppers say they also shop at farmers markets when shopping for groceries, further supporting the local mentality.” Mintel 2/2014 Source Hartman Group Strategy (2013) “Re-imagining the American Supermarket for a New Era in Food Culture.” 31 Fresh is Hot! volumetric trends from 2003 until 2009 While most companies would look for category-level causes for volumetric decline in big packaged food categories, the problem is really cultural: food culture is changing in a long-term manner that packaged food companies have yet to truly accept. Mintel 2014 Organic Trends Emphasizing the power of price in the milk category, the other retail channel occupies nearly 80% of the market share of milk sales. The channel includes supercenters and warehouse clubs, which offer price advantages and convenience for milk buyers. Sales of milk grew 18% in natural supermarkets, led by continued growth in premium dairy milk along with surges in non-dairy milk brands Organic sales grew strongly boosted by organic dairy milk. In particular, glass-bottled milk grew 36.7% between 2010 and 2012. This outpaces the overall dairy milk segment growth of 20.9%, Furthermore, 36.7% of all dairy milk sales were organic in 2012. Price promotions in various brands, packages, and formats of milk might help to bring in consumers. In addition, promotions that offer a discount on milk with the purchase of complimentary products, such as breakfast cereal, cookies, coffee, and dry pasta mixes, could bring in more consumers. Mintel dairy Report Mintel 2013 33 Non Dairy “Milk” Overall, nearly half of respondents (Mintel Survey) choose other dairy and/or non-dairy milk, including goat and plant-based milk, because it is healthier and one third opt for the varieties because they like the taste. Non-dairy milk more likely to be purchased by nonwhite consumers- 60% of Hispanics of any race; and 72% of other race With the exceptions of whole milk and soy milk, Hispanic households are more likely than respondents of other races and ethnicity to have increased milk purchases compared to the previous year. “Milk companies could have been faster to recognize the opportunity to create milk-based beverages that met growing consumer demand for more refreshing drinks,” …“They could have added popular, high-margin products such as yogurt and nutrition shakes to their portfolios, to insulate themselves from swings in the demand for milk, instead of letting companies like General Mills move in.” Jan. 4, 2013, Forbes. Mintel 2013 34 Cultural Perceptions “the up market segment of the population continues to move away from traditionally process foods and beverages and the brands built on the IP lying behind them,” (A cultural Approach to Food Quality from a New Era, The Hartman Group.) Consumers want information, transparency from food companies A survey of consumers by Sullivan Higdon and Sink found that only 31% thought food companies were transparent about their practices. To help build trust, 56% of consumers want better labeling of both nutritional information and key production elements like where the product was grown. Half of those surveyed said they would like the production facilities or farms to open for public tours, and 43% want a website where their questions would be honestly answered. FoodProductionDaily.com (3/30) http://www.usdairy.com/health-and-wellness/consumer-trends-and- preferences 35 Alternative Delivery Hits its Stride Amazon Fresh Continues Rollout InstaCart Comes to LA More traditional competitor’s will rethink strategy 36 Online & Mobile On the go consumers- retailers are not going to be able to wait for consumers to come to them but will need to go where the shopper is. (Planet Retail 4/14) More small box outlets, close to home & work. Expect to see more from Walmart as it re-engineers its supply chain to support small and online. “Online and mobile sales reached $225.5 billion in 2012, up nearly 16% from 2011.” Growth of 47% is expected by 2017, reaching $331.4 billion. Planet Retail 4/14 Mintel Online Report 201337 Occasion-Based Consumption 38 Types of retailers shopped Most often shop Also shop at % % Supermarket (eg. Kroger, Safeway, Albertsons, 45 51 Publix, etc.) Walmart 30 52 Warehouse club (eg Costco, Sam’s Club, BJ’s 5 27 Wholesale) Target 4 28 Dollar stores (eg Family Dollar, Dollar General, Dollar Tree) 3 21 Whole Foods Market 2 11 Drug stores (eg Walgreens, CVS, Duane Reade) 1 22 Trader Joe’s 1 10 Farmers market 1 12 Other natural food store(s) (other than WF or TJ’s) 1 6 Convenience stores (eg 7-Eleven, bodega, “corner 1 6 store”) Internet retailers (eg Peapod, FreshDirect, - 3 Amazon.com) Specialty food store(s) - 4 Mintel Other 5 8 11/2013 None of the above - 4 39 Key Social Media Metrics Facebook/Mintel 2014 40 Innovations/Improvements desired when grocery shopping, 11/2013 “What innovations/improvements would you most be interested in using when shopping for groceries?” Source: Mintel, Feb.